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CONFIDENTIAL (FR)
SUPPLEMENT
CURRENT ECONOMIC AND FINANCIAL CONDITIONS
Prepared for theFederal Open Market Committee
By the StaffBoard of Governors
of the Federal Reserve System
December 15, 1978
TABLE OF CONTENTS
Page
THE DOMESTIC NONFINANCIAL ECONOMYIndustrial production . . . . . . . . . . . .Capacity utilization . . . . . . . . . .Business inventories . .. .. * * . .
TABLES:Business inventories . . . . . . . .Inventory/Sales Ratios . . . . . . .
THE DOMESTIC FINANCIAL ECONOMYMoney market certificates . . . . . . .
TABLES:Estimated Money Market Certificate InflowsMonetary Aggregates . . . . . . . . ....Interest Rates . . .
INTERNATIONAL DEVELOPMENTSCentral bank money stock growth target range
* S S S
* . S *
. * . . . . *
ERRATUM: . . . . . . . . . . . . . . . . . .
APPENDIX:Bank Credit Revision . .
Tables: Commercial Bank Credit . . . . . . . ..Seasonally Adjusted Bank Credit . . * . . . .
Senior Loan Officer Opinion Survey on Bank
Lending Practices . . . . . . . . . . . . a . * 0 a * 0
Tables: Senior Loan Officer Opinion-Survey on BankLending Practices . . . * * * ......
Comparison of Quarterly Changes in Bank LendingPractices at Banks Grouped bySize of Total
Assets . *. . . . * .* * * * * * * * * * *
10
A-iA-5A-6
B-1
B-3
B-4
SUPPLEMENTAL NOTES
The Domestic Nonfinancial Economy
Industrial production in November is estimated to have increased
0.7 per cent. Gains were widespread, but output of consumer durable goods
other than automotive products declined. The advance in total industrial
production in November was somewhat stronger than in the two preceding
months but close to the average monthly increase over the first ten months
of the year. The November index is 7.3 per cent above the level a year
earlier.
Output of consumer goods rose 0.5 per cent, due to a further
sizable increase in the output of automotive products and a fairly strong
gain in the production of consumer nondurable goods. Production of home
goods, which is nearly one fifth of the consumer goods component of the
index, declined in November for the second consecutive month because of
cuts in the output of appliances and furniture. Production of business
equipment is estimated to have increased 0.7 per cent in November--somewhat
more than in the preceding two months, reflecting continued gains in
commercial, transit, and farm equipment. Output of construction and busi-
ness supplies also advanced sharply last month.
Production of materials advanced strongly again in November.
Durable goods materials production increased by 0.8 per cent because of
continued strength in output of basic metals and parts for equipment and
consumer durables. Production of nondurable goods materials rose only
slightly further. Output of energy materials advanced 0.9 per cent.
Capacity utilization in manufacturing increased by .3 percentage
point in November to 85.7 per cent, the highest rate since July 1974. The
operating rate in advanced processing industries rose by .4 percentage
point to 84.4 per cent, as production of transportation equipment and
machinery showed continued gains. Motor vehicle manufacturers were operating
near capacity in November and output of aerospace and miscellaneous
transportation equipment was at its highest level since October 1969.
Capacity utilization for industrial materials rose by .4 per-
centage point to 87.0 per cent. The utilization rate for durable goods
materials increased by .5 percentage point, mainly reflecting gains in
basic metals and components for equipment and consumer durables. Energy
materials capacity utilization rose by .7 percentage point. The operating
rate for nondurable goods materials was little changed.
The utilization rate in manufacturing for November was 2.3
percentage points below the 1973 peak value of 88 per cent. In advanced
processing industries, the rate was only 1 percentage point below the
1973 high of 85.4, while in primary processing industries and in materials
the rates were between 5 and 6 percentage points below their exceptionally
high 1973 peak values.
The book value of total manufacturing and trade inventories
increased at an annual rate of $38.1 billion in October. This rate of
accumulation was well above the September rate of $23.2 billion and the
third quarter rate of $31.3 billion, but still well below the pace during
the first half of the year. In October the ratio of all manufacturing and
trade inventories to sales declined to 1.39, the lowest level since
December, 1950.
-3-
The book value of retail trade inventories increased at a
seasonally adjusted annual rate of $7.6 billion in October. This rate,
up sharply from the slight decline in September, was still somewhat
below the third quarter $8.5 billion rate of accumulation. The October
increase in stocks was accompanied by a substantial pickup in sales (1.3
per cent), and the ratio of all retail inventories to sales edged down
to 1.40--low on an historical basis.
Retail inventories of durable goods rose at an annual rate of
$5.7 billion; this is well above the modest third quarter rate of rise
which was tempered by a drop in September. The build-up in durable goods
inventories in October were concentrated at retailers of automobiles, where
unit stocks were also reported to be up substantially in October. Book
value of inventories of nondurable goods rose at an annual rate of $2.0
billion, following $.7 billion rate increase (revised) in September.
Stocks at department stores declined for the first time since last February,
indicating that some corrections in the overstocked general merchandise
sector have been taking place.
The book value of wholesale trade inventories rose at a seasonally
adjusted annual rate of $18.9 billion, more than twice the downward revised
September pace and almost four times the pace recorded for the third quarter
as a whole. While the October increase in stocks was robust, it was accom-
panied by a sharp pickup in sales (4.2 per cent); as a result the ratio of
all wholesale inventories to sales fell to 1.18, somewhat low on an
historical basis.
Wholesalers' stocks of durable goods increased at an annual
rate of $7.3 billion, following the $2.4 billion rate gain in the pre-
ceding month. A large increase occurred in stocks merchants of motor
vehicles, primarily importers of foreign cars. Nondurable goods whole-
salers added to stocks at an annual rate of $11.6 billion, well above
the August pace. Inventories held by wholesalers of raw farm products
increased at a $4.1 billion annual rate; some of this book value gain
probably reflected recent rapid price advances for many foodstuffs.
Stocks of the miscellaneous grouping of nondurable-goods establishments,
which includes apparel and related goods; rose very sharply in October.
BUSINESS INVENTORIES(Change at annual rates in
seasonally adjusted book value; billions of dollars)
1977 1978
QII QIII QIV QI QII QIII Sept.(r) Oct.(p)
Manufacturing and trade 28.3 25.2 17.8 44.2 44.3 31.3 23.2 38.1Manufacturing 15.7 10.2 2.8 16.6 22.8 18.0 14.2 11.5Trade, total 12.6 15.0 14.9 27.6 21.5 13.3 9.0 26.6
Wholesale 2.6 4.7 7.5 19.5 11.8 4.8 9.2 18.9Retail 10.0 10.3 7.4 8.1 9.8 8.5 -.2 7.6
Durable 3.8 5.1 3.9 3.9 2.1 2.1 -. 9 5.7Auto 2.2 1.5 2.8 .9 .2 -.2 -1.2 4.9
Nondurable 6.2 5.2 3.5 4.1 7.7 6.4 .7 2.0
r = revised
p = preliminary
INVENTORY/SALES RATIOS
1977 1978QII QIII QIV QII I QIII Sept.(r) Oct.(p)
Manufacturing and trade 1.46 1.48 1.44 1.46 1.42 1.43 1.41 1.39Manufacturing 1.60 1.61 1.56 1.56 1.52 1.54 1.52 1.50Trade, total 1.32 1.35 1.33 1.36 1.31 1.32 1.31 1.29
Wholesale 1.21 1.24 1.23 1.27 1.20 1.21 1.20 1.18Retail 1.43 1.45 1.42 1.45 1.42 1.43 1.41 1.40
r = revised
p = preliminary
The Domestic Financial Economy
Money market certificate issuance continued strong in November,
with sales of over $15 billion (see Table). S&Ls and commercial banks
attracted a record volume of money market certificate deposits in November,
whereas MSBs experienced a significant slowdown in certificate issuance
which may help explain the decline in total deposit growth at MSBs. It
should be noted that November figures for commercial banks and MSBs are
for a five-week period, compared to four weeks in previous surveys. On
a weekly average basis, the pace of commercial bank certificate issuance
in November was only slightly stronger than in October, and the decline
in certificate sales by MSBs was especially marked.
The November slowdown in 6-month certificate sales at savings
banks occurred despite an increase in the proportion of MSBs offering
the new instrument. As of the end of November an estimated 75 per cent
of MSBs offered the money market certificate, of which about 63 per
cent were paying ceiling rates. The proportion of commercial banks offering
money market certificates continued to increase to 77 per cent, 83 per cent
of which were paying ceiling rates at the end of the month.
Table 1
Estimated Money Market Certificate Inflows
Money Market CertificatesOutstanding As of the End
i of November:Inflows ($ billions):- Per Cent of Total 2/
June July August September October November $ billions Deposits Outstanding -
Commercial Banks
S&Ls
MSBs
All Institutions
4.9
3.4
6.0
1.9
8.6 11.3
1/ Commercial bank and MSB certificate inflows through the last Wednesday of the month.2/ Per cent of small-denomination time and savings deposits for commercial banks.
2.3
3.1
1.5
6.9
1.9
4.0
1.1
13.9
5.8
7.4
1.9
15.1
19.7
32.3
10.8
62.8
III - 8MONETARY AGGREGATES(Seasonally adjusted)1/
Nov. '771978 to
QI QII QIII Sept. Oct. Nov.p Nov. '78 p
Major monetary aggregates1. M-1 (currency plus demand
deposits) 6.2 9.9 7.6 14.1 3.7 -4.6 7.3
2. M-1+ (M-1 plus savingsdeposits at CBs andcheckable deposits atthrift institutions) 4.9 6.9 5.3 12.2 1.8 -7.1 4.9
3. M-2 (M-1 plus time & savingsdeposits at CBs, otherthan large CDs) 6.9 7.9 8.9 12.5 7.0 4.3 8.1
4. M-3 (M-2 plus all depositsat thrift institutions) 7.7 7.8 10.1 14.0 10.0 6.8 9.2
Bank time and savings deposits5. Total 12.8 10.1 9.5 13.8 7.9 23.7 12.16. Other than large negotiable
CDs at weekly reporting banks(interest bearing componentof M-2) 7.3 6.4 10.0 11.8 9.1 10.7 8.7
7. Savings deposits 2.6 1.6 1.3 9.7 -1.6 -10.7 1.18. Individuals 2/ 2.4 1.8 2.5 8.7 -2.9 -8.6 1.59. Other 3/ 2.6 0.0 -15.5 16.2 16.0 -39.5 -3.9
10. Time deposits 11.4 10.5 17.3 13.6 17.7 28.1 15.4Small time 4/ 3.6 6.8 8.5 11.9 23.5 4.7 8.4
12. Large time 4/ 26.9 17.3 32.7 16.4 8.1 67.8 28.513. Time and savings deposits sub-
ject to rate ceilings (7+11) 3.0 3.8 4.4 10.7 9.4 -3.9 4.3Deposits at nonbank thrift institutions 5/14. Total 8.8 7.6 11.6 15.8 13.4 10.3 10.6
15. Savings and loan associations 9.0 7.9 12.8 16.9 14.6 11.6 11.4
16. Mutual savings banks 5.8 3.9 7.1 11.3 11.2 8.6 6.817. Credit unions 17.4 16.6 13.6 20.9 6.8 n.a. n.a.
Average monthly changes, billions of dollarsMEMORANDA:
18. Total U.S. Govt. deposits6/ -1.2 1.1 1.5 1.3 3.8 0.5 1.1
19. Total large time deposits 7/ 4.6 2.8 3.1 3.2 0.8 13.1 4.1
20. Nondeposit sources of funds 8/ 1.7 0.7 1.2 1.0 5.1 -1.7 1.1
p--preliminary. n.a.--not available.1/ Quarterly growth rates are computed on a quarterly average basis.2/ Savings deposits held by individuals and nonprofit organizations.3/ Savings deposits of business, government, and others, not seasonally adjusted.4/ Small time deposits are time deposits in denominations less than $100,000.
Large time deposits are time deposits in denominations of $100,000 and aboveexcluding negotiable CDs at weekly reporting banks.
5/ Growth rates computed from monthly levels based on average of current and pre-ceding end-of-month data.
6/ Includes Treasury demand deposits at commercial banks and Federal Reserve Banks
and Treasury note balances.7/ All large time certificates, negotiable and nonnegotiable, at all CBs.
Nondeposit borrowings of commercial banks from nonbank sources include Federalfunds purchased and security RPs plus other liabilities for borrowed money(including borrowings from the Federal Reserve), Eurodollar borrowings, and
loans sold, less interbank borrowings.
-9-
INTEREST RATES(One day quotes--in per cent)
1978Highs Lows Nov. 20 Dec. 14
Short-term Rates
Federal funds (wkly. avg.)
3-monthTreasury bills (bid)Comm. paper (90-119 days)Bankers' acceptancesEuro-dollarsCDs (NYC) 90 daysMost often quoted new
6-monthTreasury bills (bid)Comm. paper (4-6 mos.)CDs (NYC) 180 daysMost often quoted new
1-yearTreasury bills (bid)CDs (NYC)Most often quoted new
Prime municipal note
Intermediate- and Long-term
Treasury (constant maturity)3-year7-year
20-yearCorporate
Seasoned AaaBaa
Aaa Utility New IssueRecently offered
MunicipalBond Buyer index
Mortgage--average yields inFNMA auction
9.87(12/6)
9.12(11/28)10.31(11/16)10.70(11/1)12.06(11/14)
10.38(12/13)
9.48(11/8)10.41(11/15)
10.75(12/13)
9.38(11/9)
10.25(12/13)5.45(12/8)
9.32(10/31)9.00(10/31)8.90(10/31)
9.12(12/13)9.88(12/13)9.30(12/14)9.35(12/14)
6.45(12/14)
6.58(1/11)
6.09(4/24)6.63(1/6)6.70(1/6)7.00(2/8)
6.65(1/4)
6.43(1/4)6.66(1/5)
6.85(1/4)
6.53(1/4)
7.05(1/4)3.55(3/3)
7.38(1/4)7.71(1/5)8.00(1/5)
8.28(1/3)9.09(1/3)8.61(3/24)8.48(1/6)
5.58(3/16)
9.68(11/22)
8.2110.2210.3311.00
10.25(11/15)
8.9110.30
10.72(11/15)
8.99
10.04(11/15)5.20(11/17)
8.858.728.69
9.79(12/1)
8.9010.3010.3511.38
10.38(12/1:
9.2010.36
10.75(12/1:
9.25
10.25(12/1:5.45(12/8
9.208.968.88
9.009.829.25(11/17)9.24(11/17)
6.11(11/16)
9.12(12/1:9.88(12/1:9.309.35
6.45
10.27(11/13) 10.40(12/1!10.40(12/11) 9.13(1/9)
APPENDIX A*BANK CREDIT REVISION
The commercial bank credit figures used in this month's analysisof financial developments reflect revisions based on the June 30, 1978Call Report. This appendix explains the effects of these revisions onprevious estimates of loans and investments.
According to the June Call Report data, growth in commercialbank credit was considerably larger over the first half of 1978 thanthe partially estimated data had indicated. The seasonally adjustedannual rate of growth in total loans and investments over that periodwas 14.0 per cent or 2.3 percentage points above the estimated 11.7per cent as shown in Table I. The new higher level for total bankcredit reflected upward revisions in all major credit components.
The level of the total bank credit series was raised $9.8 bil-lion as of June 30, 1978, and the level of the total loan series wasraised $6.6 billion as shown in Table II. These were unusually largerevisions and were exceeded only by those in June and December 1976.Levels of U.S. Treasury securities and "other securites" were increasedby $1.8 billion and $1.5 billion respectively--also substantial revisionsand in the case of Treasury securities, larger than any previous bench-mark revisions.
Revisions in the original monthly estimates reflect three sourcesof error, as discussed below.
1. Nonmember bank credit estimates. Data from the June CallReport suggest that total credit at nonmember banks (including loans todomestic commercial banks) increased between December 31, 1977 andJune 28, 1978 by $9.5 billion more than previously estimated.1/ Loanswere $7.0 billion higher. By historical standards, these revisionsare very large (only those for June 1976 were larger) and they indicatecomparatively much stronger growth at nonmember banks than might besuggested by the nonmembers' share of outstanding bank credit in December1977. Estimates of U.S. Treasury security holdings were raised $0.9
* Prepared by Edward R. Fry, Senior Economist and Mary Jane HarrringtonEconomist, Banking Section, Division of Research and Statistics.
1/ Initial estimates for nonmember banks are for the last-Wednesday ofeach month. These estimates are based on data reported weekly bythe smaller member banks, using the ratios aerived from Call Reports
that relate nonmember amounts to the amounts reported by smallermember banks. Previous estimates reflected Call Report relationshipsas of December 31, 1977, and data reported weekly for member banks.
A-2
billion and those for "other securities", $1.6 billion--a near-recordchange. Nonmember estimates were revised for earlier months back throughJanuary 1978--i.e., to the previous Call Report benchmark. Also, therevised levels were carried forward from June 1978 into the currentmonthly estimates. Revisions of levels for recent months, however, hadlittle effect on changes in bank credit for those months.
2. Estimates of domestic interbank loans. Most banks thatreport weekly data currently include interbank loans in their totalloans figures, so it is necessary to subtract estimates of interbankloans from reported total loans in order to derive the desired mea-
sure of loans to the nonbank public. Estimation errors in these inter-bank estimates--based on current weekly data from member banks and CallReport blowups representing nonmembers--frequently are large. basedon the June 30, 1978 benchmark, interbank loans estimated previouslyfor June 28 were raised $3.3 billion. This error was about the same
as that for June 1977, and it was considerably larger than that of anyother Call period. Interbank loans at small member banks declinedsubstantially between December 31, 1977 and June 30, 1978, and those atinsured nonmember banks also declined somewhat. However, loans at non-insured banks--largely U.S. branches of foreign commercial banks--increased rather than following the trend at other banks. These diversechanges resulted in an increase in the ratio of interbank loans atnonmember banks to those at small member banks from 130 per cent inDecember to 162 per cent in June--a record high for this blowup ratio.While this ratio is extremely volatile, revised loan estimates afterJune assume that nonmember interbank loans will continue high relativeto small member bank loans. Available monthly reports for U.S. branches
of foreign banks indicate that interbank loans continued to increasethrough the third quarter.
Because of their extreme volatility, interbank loans are diffi-cult to estimate and these estimates are frequently a major source oferror in bank credit estimates. However, in this case, revisions ininterbank loans paralleled those for total loans, so the upward revisionin loans excluding interbank, the concept used in the bank credit series,was considerably smaller than the revisions in total loans.
3. "Window-dressing" estimates. When the last Wednesdaycurrent reporting date differs from the Call Report date, as usuallyhappens, an estimate of the difference in levels between these two
dates is included in the initial bank credit estimates for the June 30and December 31 Call dates. The change between the Wednesday and Calldates is termed "window dressing," and, frequently in the past, estimates
of this change have contributed substantially to benchmark revisions.In June 1978, the actual change in total bank credit between June 28 andJune 30 was $9.2 billion--$3.7 billion above the estimated "window-dresing." The source of error in the total loans estimate was $2.9
A-3
billion with all loan categories showing upward revisions. "Window-dressing" was also underestimated $0.9 billion for U.S. Treasury securi-rities but slighly overestimated for "other securities." The volume of"window-dressing" in the June 1978 period was much larger than in anyprevious June period.
"Window-dressing" errors affect only the June levels and changesinvolving June levels--e.g., since the "window-dressing" correctionraised June but not subsequent months, estimated increases in bankcredit were lowered for July and the third quarter by a correspondingamount. The combined effects of errors in nonmember bank credit,interbank loans, and "window-dressing" resulted in a somewhat smoothergrowth pattern around mid-year--a 13.7 per cent annual rate in totalcredit in June compared with the previous estimate of 6.0 per centand 11.0 per cent in July compared with an estimated 16.7 per cent.
Taking account of both revisions in nomember bank and"window-dressing" estimates, the net effects on major loancategories varied considerably. Business loans was the onlycategory to show a downward revision--$1.4 billion lower than theestimated June 30 level, reducing the first-half growth rate from18.0 per cent to 16.7 per cent. Business loan estimates also werereduced by the previous December 1977 benchmark adjustment, buthistorically, revisions have generally been upward. Real estateloans were $1.5 billion higher on the June Call than previouslyestimated--close to the average correction of other recent bench-marks.
The level of security loans was increased by $0.9 billionas of June 30 on the revised basis, reflecting almost entirely a"window-dressing" error. These loans increased $2.5 billion be-tween June 28 and June 30. While a financing on June 30 and areduction in System repurchase agreements (apparently resulting ina temporary increase in bank financing of security portfolios ofdealers) were taken into account, the total effect was underestimated.Agricultural loans and loans to nonbank financial institutions wererevised upward by $0.5 billion and $0.3 billion respectively.
Consumer loans (not shown on tables) accounted for a sub-stantial part of bank loan growth in 1978. This series is a com-ponent of the Consumer Credit series and the 1978 data for consumerloans reflect not only benchmark revisions to the June 30 levels butalso a major revision in Consumer Credit statistics. As of June 30,1978, seasonally adjusted consumer loans in the bank series wereincreased from $128.5 billion to $153.5 billion. This increase re-flects the combined effects of the benchmark correction and a con-ceptual change that incorporates loans previously classified as"all other" into the consumer loan category. This conceptual change
A-4
involves the elimination of a previous arbitrary adjustment that wasdesigned to remove certain credit used by housenolds for businessor other nonconsumer purposes. After this change, consumer loansin the Consumer Credit series correspond to "other loans to indivi-duals" on the Call Report. The substantial change in level, however,affected current changes and annual rates only moderately. Consumerloans increased at an annual rate of 20.5 per cent over the firsthalf of 1978 compared with an estimated rate of 18.2 per cent.
Table 1
1/Commercial Bank Credit12/
Comparison of Old and Revised Rates of Growth-
(Seasonally adjusted changes at annual percentage rates)
Total loans 3/and investments-
U.S. Treasurysecurities Other securities 3/
Total loans-3/Business loans- Real estate
Old Revised Old Revised Old Revised Old Revised Old Revised Old Revised
1978
1st half
1st qtr.2nd qtr.3rd qtr.p/
JanuaryFebruaryMarch
AprilMayJune
July p/August p/September P/
October p/
11.7
9.713.510.7
13.67.97.4
18.515.6
6.0
16.75.29.9
14.0
10.617.0
8.7
14.48.58.5
19.916.613.7
11.05.19.7
5.9
11.7-8.5
8.833.6
-41.2
25.1-6.116.1
15.9-32.5
-8.7
9.6
2.117.1
-12.0
11.336.0-39.8
27.54.9
28.2
4.8-32.2
-8.6
6.1
5.36.78.8
10.6
5.3
15.05.9
-0.7
5.211.010.2
7.8
7.18.59.0
12.22.36.8
17.27.40.7
5.810.910.1
-24.9 -24.7
14.1 16.2
12.315.414.0
15.05.9
15.5
18.321.2
6.2
19.69.4
12.5
12.719.111.7
15.45.9
16.5
19.422.114.8
13.29.2
12.3
14.8 15.3
18.0 16.7 17.0 18.7
16.319.011.0
12.911.623.6
17.532.8
6.0
10.812.3
9.5
15.317.410.3
12.310.522.5
15.330.7
5.4
10.311.3
9.1
16.117.217.1
14.916.815.9
15.019.416.5
16.918.515.2
17.219.317.6
16.317.417.2
15.621.919.6
17.419.015.7
10.5 10.6 16.2 16.7
1/ Last-Wednesday-of-monthof the month.
2/ Data revised to reflect
series except for June and December which are adjusted to the last business day
adjustment to June 30, 1978 Call Report benchmark.Includes outstanding amounts of loans reported as sold outright by banks to their own foreign branches,nonconsolidated nonbank affiliates of the bank's holding company (if not a bank) and nonconsolidatednonbank subsidiaries of holding companies.
Table II
1/Seasonally Adjusted Bank Credit 2/
Comparison of Old and Revised Levels-
(In billions of dollars)
Total loans 3/ U.S. Treasuryand investments- securities
Old Revised Old Revised
885.4891.2896.7
910.5922.3926.9
939.8943.9
p/ 951.7
886.0892.3898.6
913.5926.1936.7
945.3949.3957.0
96.399.095.6
97.697.198.4
99.797.096.3
96.599.496.1
98.397.9
100.2
100.697.997.2
Other securities T
Old Revised Old
159.4159.4160.1
162.1162.9162.8
163.5165.0166.4
159.6159.9160.8
163.1164.1164.2
165.0166.5167.9
Total
629.7632.8641.0
650.8662.3665.7
676.6681.9689.0
Q /I
Sloans- Business loans- Real estate
Revised Old Revised Old Revised
629.9633.0641.7
652.1664.1672.3
679.7684.9691.9
206.4208.4212.5
215.6221.5222.6
224.6226.9228.7
206.3208.1212.0
214.7220.2221.2
223.1225.2226.9
178.8181.3183.7
186.0189.0191.6
194.3197.3199.8
179.0181.6184.2
186.6190.0193.1
195.9199.0201.6
October p/ 959.2 964.8 94.3 95.2 167.4 168.9 697.5 700.7 230.7 228.9 202.5 204.4
I/ Last-Wednesday-of-month series except for June and December which areof the month.
adjusted to the last business day
Data revised to reflect adjustment to June 30, 1978 Call Report benchmark.Includes outstanding amounts of loans reported as sold outright by banks to their own foreign branches,nonconsolidated nonbank affiliates of the bank's holding company (if not a bank) and nonconsolidatednonbank subsidiaries of holding companies.
1978
JanuaryFebruaryMarch
AprilMayJune
July p/August p/September
S/
APPENDIX B*SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICES*
Of the 121 respondents to the mid-November survey, justunder one-half reported that business loan demand had strengthened
over the previous three months, a slight decline from the August
survey entirely accounted for by medium-size banks (those with assets
under $5 billion.) Although the proportion of reporting banks expectinga further strengthening of loan demand in the three months following
the survey--about one-half--was unchanged from the previous survey,the number of medium-size respondents expecting loan demand to diminish
over this period increased slightly.
At the time of the November survey, the prime rate continuedto be under upward pressure after it had already been raised in a
series of steps by 1-3/4 percentage points since the mid-August survey.
Respondents--in particular, the large banks with deposits over $5
billion--reported that this increase in the nominal cost of credit was
paralleled by substantial tightening in standards of creditworthiness
and other non-price loan terms. One quarter of the respondents indi-
cated that their bank had stiffened their criteria to qualify for the
prime rate in the previous three months, considerably more than the 10
per cent of respondents who had done so as of mid-August. There was
a similar but less dramatic increase in the number of banks establishingfirmer terms to quality for spreads above prime.
A movement toward greater firmness when determining the avail-ability of credit for new customers, which was already apparent in pre-
vious surveys, began by November to be applied to established customers
as well. Both large and medium-size banks shared in this policy. Inthe past year more than 40 per cent of all respondents have become more
stringent when reviewing credit applications from new customers.
Compensating balances were firmed by over one quarter of respon-dents, somewhat more than had reported tightening in the previous survey.
Tightening was more pronounced among the large banks. Similarly, a
notable increase in the proportion of banks less willing to make fixed-rate loans was accounted for primarily by large banks. Large banks
have become somewhat less liquid in recent months--although theirliquidity positions have been generally less affected over the current
expansion than those of other banks, which had indicated some tighten-
ing of lending terms in preceding surveys.
* Prepared by Thomas F. Brady, Banking Section, Division of Researchand Statistics.
B-2
There were notable increases in the number of respondentsreporting less willingness to extend several other types of credit.Reluctance to lend was particularly evident for secured constructionloans and real estate loans secured by both residential and nonresiden-tial properties. Overall, one-third of the respondents had becomeless willing to make loans of these types in the three months endingin November--about twice what was reported in August--while the numberof banks reporting less willingness to make instalment loans to indivi-duals rose from one in twenty to about one in five. There were also
notable increases in the number of banks less willing to make commercialand industrial loans and participation loans with correspondent banks.
B-3
TABLE 1 PAGE 1
SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICESAT SELECTED LARGE BANKS IN THE U.S.
(STATUS OF POLICY ON NOVEMBER 15, 1978 COMPARED TO THREE MONTHS EARLIER)(NUMBER OF BANKS & PERCENT OF TOTAL BANKS ANSWERING QUESTION)
LOAN DEMANDMUCH MODERATELY ESSENTIALLY MODERATELY MUCH
STRENGTH OF DEMAND FOR COMMERCIAL AND STRONGER STRONGER UNCHANGED EASIER EASIER TOTAL
INDUSTRIAL LOANS (AFTER ALLOWANCE FOR BANKSBANKS USUAL SEASONAL VARIATION): BANKS PCT BANKS PCT BANKS PCT BANKS PCT BANKS PCT ANSWERING
1. COMPARED TO THREE MONTHS EARLIER 2 1.7 52 43.0 57 47.2 9 7.5 1 0.9 121
2. ANTICIPATED DEMAND IN NEXT 3 MONTHS 5 4.2 55 45.5 51 42.2 10 8.3 0 0.0 121
MUCH MODERATELY ESSENTIALLY MODERATELY MUCHI ' T E F - S T R A T E P 0 L I C Y FIRMER FIRMER UNCHANGED EASIER EASIER
STANDARDS OF CREDIT WORTHINESS: BANKS PCT BANKS PCT BANKS PCT BANKS PCT BANKS PCT
3. TO QUALIFY FOR PRIME RATE 1 0.9 28 24.0 88 75.3 0 0.0 0 0.0 117
4. Tn QUALIFY FOR SPREAD ABOVE PRIME 5 4.2 34 28.4 78 65.0 3 2.5 0 0.0 120
CONSIDERABLY MODERATELY ESSENTIALLY MODERATELY MUCHGREATER GREATER UNCHANGED LESS LESS
WILLINGNESS TO MAKE FIXED RATE LOANS: BANKS PCT BANKS PCT BANKS PCT BANKS PCT BANKS PCT
5. SHORT-TERM IUNDER ONE YEAR) 1 0.9 1 0.9 74 61.2 37 30.6 8 6.7 121
6. LONG-TERM (ONE YEAR CR LONGER] 0 0.0 8 6.7 57 47.2 38 31.5 18 14.9 121
CREDIT AVAILABILITYA N 0 N 0 N P R I C E T E R M S MUCH MODERATELY ESSENTIALLY MODERATELY MUCH
FIRMER FIRMER UNCHANGED EASIER EASIERREVIEWING CREDIT LINES OR LOANAPPLICATIONS FOR: BANKS PCT BANKS PCT BANKS PCT BANKS PCT BANKS PCT
7. ESTABLISHED CUSTOMERS 0 0.0 12 10.0 107 88.5 2 1.7 0 0.0 121
8. NEW CUSTOMERS 9 7.5 32 26.5 80 66.2 0 0.0 0 0.0 121
9. LOCAL SERVICE AREA CUSTOMERS 1 0.9 15 12.5 102 85.0 2 1.7 0 0.0 120
10. NONLOCAL SERVICE AREA CUSTOMERS 13 10.9 25 20.9 81 67.5 1 0.9 0 0.0 120
COMOENSATING BALANCE REQUIREMENTS FOR:
11. COMMERCIAL & INDUSTRIAL LOANS 2 1.7 31 25.7 85 70.3 3 2.5 0 0.0 L21
12. LOANS TO FINANCE COMPANIES 1 0.9 17 14.1 100 82.7 3 2.5 0 0.0 121
CONSIDERABLY MODERATELY ESSENTIALLY MODERATELY MUCHGREATER GREATER UNCHANGED LESS LESS
WILLINGNESS TO MAKE OTHER TYoS CF LOANS: BANKS PCT BANKS PCT BANKS PCT BANKS PCT BANKS PCT
13. SECURED CONSTRUCTION E LAND DVLPMNT 0 0.0 4 3.4 76 62.9 33 27.3 8 6.7 121
SECURED REAL ESTATE LOANS:
14. 1-4 FAMILY RESIDENTIAL PROPERTIES 0 0.0 3 2.5 82 68.4 27 22.5 B 6.7 120
15. MULTI-FAMILY RESIDENTIAL PROPERTY O 0.0 0 0.0 81 69.3 25 21.4 11 9.5 117
16. COMMERCIAL & INDUSTRIAL PROPERTY 0 0.0 2 1.7 83 68.6 32 26.5 4 3.4 121
17. INSTALLMENT LOANS TO INDIVIDUALS 0 0.0 2 1.7 108 90.0 9 7.5 1 0.9 120
COMMERCIAL AND INDUSTRIAL LOANS OF:
IB. 1-5 YEARS MATUPITY 0 0.0 3 2.5 100 82.7 14 11.6 4 3.4 121
19. OVER 5 YEARS MATURITY 0 0.0 1 0.9 86 71.1 26 21.5 8 6.7 121
20. LOANS TO FINANCE COMPANIES 0 0.0 0 0.0 96 79.4 21 17.4 4 3.4 121
21. LOANS TO SECURITIES BROKERS & DEALERS 0 0.0 0 0.0 97 80.2 17 14.1 7 5.8 121
22. PARTICIPATION LOANS WITH 0 0.0 8 6.7 99 81.9 12 10.0 2 1.7 121CORRESPONDENT BANKS
B-4
TABLE 2
COMPARISON OF QUARTERLY CHANGES IN BANK LENDING PRACTICES AT BANKS GROUPED BY SIZE OF TOTAL DOMESTIC ASSETS(STATUS OF POLICY ON NOVEMBER 15, 1978 COMPARED TO THREE MONTHS EARLIER)
(NUMBER OF BANKS ANSWERING EACH QUESTION AS PERCENT OF TOTAL NUMBER OF BANKS ANSWERING QUESTION)
SIZE OF BANK -- TOTAL DOMESTIC ASSETS IN
L O A N D E M A N D MUCHSTRONGER
STRENGTH OF DEMAND FOR COMMERCIAL ANDINDUSTRIAL LOANS (AFTER ALLOWANCE FOR $5 UNDERBANKS USUAL SEASONAL VARIATION): & OVER $5
1. COMPARED TO THREE MONTHS EARLIER 5 1
2. ANTICIPATED DEMAND IN NEXT 3 MONTHS 10 3
INTEREST RATE P LICY
STANDARDS OF CREDIT WORTHINESS:
3. TO QUALIFY FOR PRIME RATE
4. TO QUALIFY FOR SPREAD ABOVE PRIME
WILLINGNESS TO MAKE FIXED RATE LOANS:
5. SHORT-TERM (UNDER ONE YEAR)
6. LONG-TERM (ONE YEAR OR LONGER)
CREDIT A V A I L A B I L I T YAN N 0 N PP I C E TERMS
REVIEWING CREDIT LINES OR LOANAPPLICATIONS FOR:
7. ESTABLISHED CUSTOMERS
8. NEW CUSTOMERS
9. LOCAL SERVICE AREA CUSTOMERS
10. NONLOCAL SERVICE AREA CUSTOMERS
COMPENSATING BALANCE REQUIREMENTS FOR:
11. COMMERCIAL & INDUSTRIAL LOANS
12. LOANS TO FINANCE COMPANIES
WILLINGNESS TO MAKE OTHER TYPESOF LOANS:
MODERATELYSTRONGER
$5 UNDER& OVER $5
57 40
57 43
_MUCH MODERATELYFIRMER FIRMER
$5 UNDER $5 UNDER
& OVER $5 & OVER $5
0 1 20 25
5 4 24 29
CONSIDERABLYGREATER
$5 UNDER
& OVER $5
O 1
0 0
MUCHFIRMER
$5 UNDER& OVER $5
0 0
5 8
O 1
10 11
MODERATELYGREATER
$5 UNDER& OVER $5
0 1
10 6
MODERATELYFIRMER
$5 UNDER& OVER $5
10 10
24 27
5 14
5 24
ESSENTIALLYUNCHANGED
$5 UNDER& OVER $5
38 49
33 44
ESSENTIALLYUNCHANGED
$5 UNDER& OVER $5
80 74
57 67
ESSENTIALLYUNCHANGED
$5 UNDER& OVER $5
43 65
29 51
ESSENTIALLYUNCHANGED
$5 UNDER& OVER $5
90 88
71 65
95 83
85 64
0 2 29
0 1 19
CONSIDERABLYGREATER
$5 UNDERC OVER $5
MODERATELYGREATER
$5 UNDER& OVER 5S
ESSENTIALLYUNCHANGED
$5 UNDER& OVER $5
MODERATELYWEAKER
$5 UNDER& OVER $5
0 9
O 10
MODERATELYEASIER
$5 UNDER& OVER $5
O 0
14 0
MODERATELYLESS
S5 UNDER& OVER $5
38 29
33 31
MODERATELYEASIER
$5 UNDER& OVER $5
0 2
0 0
0 2
0 1
10 1
10 1
MODERATELYLESS
I5 UNDER& OVER $5
BILLIONS
MUCHWEAKER
$5 UNDER& OVER $5
0 1
0 0
MUCHEASIER
15 UNDER& OVER $5
0 0
0 0
CONSIDERABLYLESS
$5 UNDER6 OVER $5
19 4
29 12
MUCHEASIER
$5 UNDER& OVER $5
O 0
0 0
O 0
0 0
0 0
0 0
CONSIDERABLYLESS
$5 UNDER& OVER $5
TOTAL
$5 UNDER& OVER $5
13. SECURED CONSTRUCTION & LAND DVLPMNT 3
SECURED REAL ESTATE LOANS:
14. 1-4 FAMILY RESIDENTIAL PROPERTIES 0
15. MULTI-FAMILY RESIDENTIAL PROPERTY 0
16. COMMERCIAL & INDUSTRIAL PROPERTY 0
17. INSTALLMENT LOANS TO INDIVIDUALS 0
COMMERCIAL AND INDUSTRIAL LOANS OF:
18. 1-5 YEARS MATURITY 0
19. OVER 5 YEARS MATURITY 0
20. LOANS TO FINANCE COMPANIES 0
21. LOANS TO SECURITIES BROKERS & DEALERS 0
22. PARTICIPATION LOANS WITH 0CORRESPONDENT BANKS
4 76 60 24 28 8 100 100
0 4
O 8
0 4
5 6
PAGE
TOTAL
$5& OVER
100
100
UNDER$5
100
Eoo
TOTAL
$5& OVER
100
100
UNDER$5
100
100
TOTAL
$5£ OVER
100
100
UNDER$5
100
100
TOTAL
$5& OVER
100
100
100
100
100
100
UNDER$5
100
100
100
100
100
100